Earnings Call Transcript - HHH Q3 2023

Operator, Operator

Good day, and welcome to Howard Hughes Holdings, Inc. Third Quarter 2023 Earnings Call. Please note that today's event is being recorded.

Eric Holcomb, Senior Vice President of Investor Relations

Good morning, and welcome to Howard Hughes Holdings Third Quarter 2023 Earnings Call. With me today are David O'Reilly, Chief Executive Officer; Jay Cross, President; Carlos Olea, Chief Financial Officer; and Dave Striph, Head of Operations. Before we begin, I would like to direct you to our website, howardhughes.com where you can download both our third quarter earnings press release and our supplemental package. The earnings release and supplemental package include reconciliations of non-GAAP financial measures that will be discussed today in relation to their most directly comparable GAAP financial measures. Certain statements made today that are not in the present tense or that discuss the company's expectations are forward-looking statements within the meanings of the federal securities laws. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that these expectations will be achieved. Please see the forward-looking statement disclaimer in our third quarter earnings press release and the risk factors in our SEC filings for factors that could cause material differences between forward-looking statements and actual results. We are not under any duty to update forward-looking statements unless required by law. With that, I will now turn the call over to our CEO, David O'Reilly.

David O'Reilly, CEO

Thank you, Eric. Good morning, and welcome to our Third Quarter Earnings Call. I'm going to begin today with a recap of the quarter and cover the segment highlights for our master planned communities in the Seaport. Dave Striph will cover our operating assets, followed by Jay Cross who will update our development projects in Ward Village. And then finally, Carlos Olea will provide an update on our full-year guidance and review our balance sheet. For the third quarter, I'm pleased to report that our company continued to deliver strong financial results in our businesses with resilient underlying demand across our world-class portfolio of assets. Looking quickly around our core segments, we reported strong MPC EBT, which was highlighted by meaningful land sales at a record average price per acre. Our MPC results were complemented by a sharp increase in new homes sold, which is a leading indicator of future land sales, further providing assurance for robust land sales activity in the quarters ahead. Our operating assets continue to deliver incredible results, with year-over-year NOI growth in all three core property types, including double-digit increases in multifamily. In Ward Village, our sales team delivered another quarter of exceptional condo sales, selling out A'ali'i and Ulana, and all but one unit at Ko'ula, which was contracted in early October. At quarter end, more than 98% of all condo units in Ward Village were sold or under contract, which is simply an amazing achievement. With these strong results and our favorable outlook for the fourth quarter, we further increased our full-year guidance expectations for MPC EBT and operating asset NOI. We've also expanded our projected condo sales and gross margins to include the sellout of A'ali'i and Ko'ula. At the Seaport, results remain challenging, with third quarter revenues declining $3 million or 9% compared to the prior year. In total, Seaport reported a net operating loss of $9.5 million, which was essentially unchanged year-over-year, and included losses of $8.1 million for the Tin Building. Year-over-year performance was impacted by the closure of restaurant concepts, fewer private events, and poor weather conditions. In September alone, New York received more than 14 inches of rain, with more than 50% of peak Thursdays to Sundays affected, including 60% of Saturdays and 75% of Sundays. The continued challenges at the Seaport led us to conduct an impairment analysis and recorded a significant noncash after-tax charge of approximately $555 million. Carlos will provide additional details in a few moments. Subsequent to the quarter end, we announced our intent to create Seaport Entertainment, a new division, which is expected to comprise HHH's entertainment-related assets in New York and Las Vegas. Most notably, including the Seaport and the Las Vegas Aviators Minor League Baseball team. We intend to spin off Seaport Entertainment into its own publicly-traded company in 2024. This planned separation from Howard Hughes will ultimately refine the identity of Howard Hughes or HHH as a pure-play real estate company, focused solely on the significant pipeline of growth opportunities within our portfolio of acclaimed master planned communities. Similarly, Seaport Entertainment, which will operate independently as an entertainment-focused enterprise, will have greater opportunities to unlock the inherent value within these assets and pursue growth within the entertainment industry. Turning to our MPC segment, we delivered $85 million of EBT or a 12% year-over-year increase, primarily due to increased super pad sales in Summerlin and residential lot sales in Bridgeland. In total, we sold more than 84 acres of residential land in the quarter at an average price of $913,000 per acre, representing an all-time record high for Howard Hughes. We also sold an additional 13 acres of commercial land in Bridgeland to Chevron, which in September announced plans to build an R&D campus on over 77 acres of land in Bridgeland Central. This significant development is not only a catalyst for initial commercial development in Bridgeland, but also for incremental future land sales, home sales and absorption within our multifamily properties. It will also drive increased demand for retail as we kick off the development of Bridgeland's future, 925-acre downtown. Our strong MPC land sales were complemented by solid builder price participation revenue of $16 million, as well as $14 million of equity earnings, primarily related to the sale of the final clubhouse condominiums in The Summit. New home sales in our MPCs remained exceptional during the quarter, with a total of 605 homes sold. This represented a sharp 113% year-over-year increase, with both Summerlin and Bridgeland more than doubling the number of homes sold in the prior year. In fact, new home sales in the Las Vegas Valley during the month of August were the highest since the late 2000s. As we described in last quarter's earnings call, the surge in new home sales is largely being driven by significant lack of resale inventory as existing homeowners remain reluctant to sell their below-market mortgage rate. This dynamic has forced homebuyers into the new home market, which through August accounted for nearly 30% of all homes sold in the United States, more than double historical norms. Ultimately, this is contributing to a strong level of demand for homebuilders and is driving elevated interest for our land. During the quarter, we continued to contract additional land parcels at near record prices across our MPCs, many of which have not yet closed. As a result, we expect continued strong land sales in the fourth quarter and into 2024, giving us increased confidence to significantly increase our 2023 MPC EBT guidance. Carlos will discuss our guidance in more detail in a few moments. But for now, I'd like to hand the call over to Dave Striph to review the performance of our operating assets.

David Striph, Head of Operations

Thank you, David, and good morning. In the third quarter, our operating assets continued to experience heightened demand and year-over-year growth across each of our three core asset types. In total, we delivered an impressive $63 million of net operating income, which represented a 3% improvement compared to the prior year. Sequentially, NOI declined $5 million, primarily due to one-time lease termination fees during the second quarter at 17125 Hughes Landing in the Woodlands. This vacated space is already under promising lease negotiations, further exemplifying the strong office demand we are seeing today. We also experienced a normal seasonal decline from the ballpark in Las Vegas, with reduced attendance through the peak summer months. Looking at our property types in more detail, the most significant year-over-year increase was seen in our multifamily portfolio, which delivered record quarterly NOI of nearly $14 million, an incredible 18% improvement. This growth was primarily driven by a 4.5% average in-place rent growth, along with favorable performance from Starling at Bridgeland and Marlow in Columbia, both of which continued lease-up at an outstanding pace. At quarter end, Starling was 93% leased and Marlow was 55% leased, with both properties achieving these results in a year or less. These improvements were partially offset by initial operating losses from Tanager Echo, the latest addition to our multifamily portfolio in Summerlin, which opened in July, and was 13% leased at quarter end. Overall, our stabilized multifamily properties finished the quarter 96% leased, with Downtown Columbia at 97%, Houston at 96%, and Summerlin at 93%. Our office portfolio generated third quarter NOI of $29 million, reflecting a 3% year-over-year improvement. This increase was primarily the result of strong lease-up activity and rent abatement expirations in the Woodlands, partially offset by some tenant turnover in our older assets in Downtown Columbia. In the Woodlands, 9950 Woodloch Forest, our flagship office in this market, has seen tremendous financial improvement with a 31% increase in leased space during the last year. This trophy asset closed the quarter at 91% leased, with the remaining space in negotiation or under expansion options for existing tenants. Overall, with our stabilized office portfolio at 87% leased, we continue to see strong demand for our highly monetized Class A office assets across all markets. In retail, the third quarter NOI was just under $13 million, or a 4% increase compared to the prior year. The improvement was related to increased rental revenue in Houston and Ward Village as lease percentages increased 6% and 2% year-over-year, respectively. Thoughtful improvements in the tenant base in Downtown Summerlin have also contributed to year-over-year growth as increases in retail sales and rental revenue drive the continued success of Summerlin's premier shopping destination. With that, I will now turn the call over to our President, Jay Cross for a review of our Strategic Development segment.

Jay Cross, President

Thank you, Dave, and good morning, everyone. In the third quarter, we achieved several key milestones, including the substantial completion of one multifamily project, and the start of construction on two new developments in our pipeline. We also continue to make good progress on all of our projects under construction. Starting in Houston, we are making exceptional progress with the development of Wingspan, our single-family for rent development located in Bridgeland. This project, which encompasses 263 homes, celebrated its grand opening a couple of weeks ago and welcomed its first residents. We anticipate Wingspan will be fully completed in mid-2024. In the Woodlands, we started construction on 1 Riva Row, a 268 unit high-rise multifamily development along the waterway. This much-awaited project will set a new standard for luxury in the Howard Hughes portfolio, and contribute meaningful NOI of nearly $10 million per year upon stabilization. We expect to complete this project in mid to late 2025. In Las Vegas, we completed construction and started leasing at Tanager Echo, our newest multifamily offering, with 294 units in the heart of Downtown Summerlin. Right across the street from Tanager Echo, we also recently announced and started construction on a new 67,000 square foot retail development, which will be anchored by a new Whole Foods Market. This new grocery-anchored center will be the first of its kind in Downtown Summerlin, and we expect it will be completed in the third quarter of 2024. A few miles South, we continue to make solid progress on the South Summerlin office, which comprises two, three-story office buildings, totaling 147,000 square feet. Topped off and enclosed, we expect this lead silver project will be completed during the first quarter of 2024. Looking quickly at Downtown Columbia, construction continues on our 86,000 square foot medical office building, where we recently celebrated the building's topping-off milestone. This development is already 28% pre-leased with the remainder under LOI or in lease negotiation. We expect to complete the construction in the first half of 2024. Overall, our current residential and commercial projects under construction represent future stabilized NOI of more than $24 million for our operating asset segment. At Ward Village, we continue to see significant demand for our residential condos. We closed on the sale of 26 units and contracted to sell an additional 13. At quarter end, we had only 85 homes remaining to sell at our current projects. At A'ali'i and Ko'ula, the price reductions we implemented earlier this year proved to be very successful, allowing us to sell the remaining 3% of the total units in these buildings. For the quarter, we closed on the sale of 26 units, generating $26 million of revenue and completely selling out A'ali'i. At quarter end, we had one unit remaining at Ko'ula, which closed last week, bringing this project to 100% sold. Overall, while our sales initiatives contributed to slightly reduced revenue and profit for the year, overall, gross margins achieved on the two towers were minimally impacted, with both projects in the range of 25% to 30%. At our projects under development, we are now in our final year of construction at Victoria Place, which is 100% presold and expected to be completed in the third quarter of 2024. At Ulana, we have contracted the remaining four units in inventory, selling out this future workforce housing tower slated to be delivered in 2025. At the Park Ward Village, we contracted two units, bringing this tower under construction to 94% presold. And finally, at Kalae we contracted seven units, making this tower 85% presold. We, therefore, expect to start construction on this project late this year. Overall, upon completion, these four towers will generate more than $2.5 billion of future revenue for Howard Hughes, which will be recognized between 2024 and 2027.

Carlos Olea, CFO

Thank you, Jay, and good morning. Let's start by addressing the impairment charge of the Seaport. As we mentioned during this call last quarter, stabilization and profitability were taking longer than expected. Office leasing challenges, the elimination of the 421a tax abatement program, significant weather events, and lagging sales triggered a full impairment analysis during this quarter. This cash flow headwind, when combined with lower restaurant multiples and higher cap rates, resulted in an after-tax impairment charge of $555 million. While we may believe that multiples will increase and cap rates will decrease over time, this analysis must be made at a point in time, using information available at that moment. This does not diminish our view of the Seaport's prospects post-spin, and we will remain focused and dedicated to a successful transition. Let's move on to an update to our full-year guidance. In MPCs, our strong results in the third quarter and our anticipated residential land sales in the fourth quarter are expected to drive significantly higher EBT for the full year. We now expect EBT to be up 10% to 20% year-on-year, which would imply record MPC EBT of $325 million at the midpoint. This compares favorably to our prior guidance of flat to down 10%, and represents an increase at the midpoint of approximately $55 million. Compared to our initial full-year guidance announced at the beginning of the year, MPC EBT is expected to be higher by $125 million at the midpoint. In operating assets, our impressive NOI performance in the third quarter, combined with our strong results throughout the year, is expected to drive enhanced NOI. Excluding the contribution from divested retail assets in 2022, operating assets NOI is now expected to be in a range of up 2% to 4% year-over-year, or approximately $243 million at the midpoint, which would be a full year record for Howard Hughes. This is an improvement from our original full-year guidance of down 2% to up 2%, or an increase of approximately $7 million at the midpoint. In Ward Village, with the remaining condo inventory at A'ali'i sold out in the third quarter and the final unit at Ko'ula contracted and closed in the fourth quarter, we now expect 2023 condo sales to range between $47 million and $48 million, with gross margins of 13% to 14%. This compares favorably to our previous guidance, which anticipated condo sales between $40 million and $45 million, with margins between 10% to 13%. And finally, our cash G&A guidance remains unchanged at $80 million to $85 million. With respect to divestitures, in July, we sold our two self-storage facilities in the Woodlands, for a combined price of approximately $30 million. This resulted in a sizable gain on sales totaling $16 million, further demonstrating the value creation proposition inherent in our development projects. Shifting to the balance sheet. We ended the quarter with $492 million of cash, with anticipated significant cash inflows from MPC land installations in the fourth quarter, we are well positioned to deploy capital into our development pipeline. At the end of the third quarter, the remaining equity contribution needed to fund our current projects was approximately $256 million, including anticipated financing for a new grocery center, anchored by Whole Foods in Summerlin. From a debt perspective, we had $5.2 billion outstanding at the end of the quarter. And although credit markets remain challenging, we completed several important financings in recent months. Our success has allowed us to start construction in two key development projects, including 1 Riva Row in the Woodlands, and infrastructure projects in Ward Village. We also refinanced our extended loans on four properties, including maturing loans for 250 Water Street in New York, and two office properties and one retail center in the Woodlands. This financing extended our weighted average debt maturity to approximately 6 years, and resulted in approximately 86% of our debt being due in 2026 or later. From now to 2024, our only debt maturity aside from scheduled principal payments, which totaled $17 million, is our construction loan for Victoria Place in Hawaii. At quarter end, this loan carried a balance of $153 million, which will be repaid with the cash proceeds from condo closings expected to occur in the third quarter of next year. And finally, at the end of the quarter, approximately 81% of our debt was fixed, capped, or swapped to a fixed rate. This is a reduction from the prior quarter, primarily due to a maturity of a $615 million interest rate swap related to loans in our operating asset segment. We continue to evaluate our hedging strategy in the current rate environment with a goal of minimizing our interest rate risk for the right cost benefit. With that, I would like to turn the call back over to David for closing remarks.

David O'Reilly, CEO

Thank you, Carlos. Before we open up for Q&A, just a couple of closing thoughts. First, despite high mortgage rates, the new home market remains strong, and homebuilders continue to seek our land at record prices. As a result, we have further increased MPC EBT guidance to a range that will likely yield record full year results. Our operating assets continue to deliver exceptional performance, which has also resulted in increased 2023 NOI guidance, again, to record levels for the year. Our strong lease-up, particularly in office, will help to drive significant NOI growth in the years to come and move this segment closer to stabilization. And finally, the anticipated spinoff of Seaport Entertainment in 2024 is a significant milestone in the history of Howard Hughes. We believe operating as a pure-play master plan community company will allow us to better focus our attention on our extensive pipeline and attractive growth opportunities within our MPCs. At the same time, Anton and the team at Seaport Entertainment will be better poised to unlock the value of these unique assets and seek complementary growth opportunities in the entertainment space. All right. With that, let's start the Q&A portion of the call. Operator, can you please open the line for our first question?

Anthony Paolone, Analyst

Can you provide us with insights on the key items we should monitor to understand the timing of the spin? Additionally, have any decisions been made regarding the inclusion of 250 Water Street or the Aviator stadium?

David O'Reilly, CEO

I appreciate the question. It's David. Look, there's a lot of diligence we have left to do, and there's a lot of items we need to complete, including finishing the audited financials that would go into Form 10, legal diligence associated with this, the tax structuring and consents of multiple parties, including lenders at both the stadium and 250 Water. I think that it'd be difficult for me to pontificate at this time as to whether or not those assets are in or out until we work through the conversations and have discussions on all the requirements we need to get the spin done. As you know, it's a multiple filing process with the SEC. It takes time for them to review and provide comments. Look, in a best-case scenario, this is a middle of next year completion, and in all likelihood, it's more towards the back half of next year. There's a lot of diligence and a lot of work that needs to get done. And we're at the very early stages right now. So until we're able to lock down that full consent list and the legal structuring, it's going to be tough for me to say exactly which assets are in or out.

Anthony Paolone, Analyst

Okay. Got it. And then second question relates to the yields on some of the incremental developments in a higher rate environment, 4% on the Whole Foods deal, and 6% on the incremental apartment start. Just wondering how you think about where those should be when you're balancing just the return on your capital as well as just the place-making goals for those MPCs more broadly? And I asked, particularly, as you mentioned kicking off the downtown of Bridgeland.

David Striph, Head of Operations

Sure. Jay, I'll let you comment on the individual assets. But in general, Tony, as you know, as a master plan developer and as a curator of these communities, the value inherent to us in development is not just the value that's created on that exact block and that exact project. But the value that, that project has on all the surrounding lands around it. The ballpark here in Downtown Summerlin is a perfect example where we delivered that at a good yield, not the best we've ever developed. But what it did in terms of driving sales per foot at the retail center across the street, office leasing and office rents, multifamily leasing, multifamily rents, with that as a catalyst, weighed into the decision. And I think that's absolutely the same case here. Specifically, with Whole Foods in Downtown Summerlin. We have Whole Foods in the Woodlands, in Ward Village and in Columbia in the old headquarters building. And we've seen in all three of those instances how much that operation, that tenant can catalyze an entire urban core. And I don't think that's any different with doing this deal here in Summerlin. Clearly, we would love to see that 4% be much higher. And the yields that we're getting on the in-line retail adjacent to Whole Foods are much higher. The Whole Foods deal itself is less desirable. But the impact that, that Whole Foods deal has on the surrounding land here. And as you know, we have multiple acres that we're continuing to develop here. We think it's pretty substantial and worth leaning into there. Jay?

Jay Cross, President

Yes. Just following up on David's comments, in Summerlin in particular, we have a pretty ambitious multifamily program. Downtown Summerlin, once Tanager Echo is leased up, we think the presence of Whole Foods is going to accelerate our ability to develop the balance of downtown. And then switching to Riva Row in the Woodlands, as we've noted in the office segment, there's been a flight to quality. Our most successful office building here is 9950, and similarly, we believe that there's going to be a flight to quality of multifamily. And so while we perform market rents based on the success of the existing buildings, Riva Row is by far the best product we've designed yet in the Woodlands, and we think there's a significant opportunity to outperform. And then with respect to Bridgeland, it's early days yet, but the Chevron announcement has really encouraged us to more seriously start to master plan that urban core. We're starting to look at additional retail and potentially more office, again, to establish Bridgeland as a commercial center, introducing them to a residential center. And so there's more to come on that, but we're excited about the potential of Downtown Bridgeland.

Alexander Goldfarb, Analyst

First, congratulations on the Seaport Entertainment news. That's definitely a welcome development. David, I know quarterly earnings is a regular topic of conversation between us. However, as I review your results, it appears that excluding Seaport, everything else is performing exceptionally well. Most major business lines have seen increases in guidance, indicating strong performance. I just want to confirm that my interpretation of the quarterly earnings is accurate: aside from Seaport, all other areas of the company are thriving and continuing to exceed expectations. Is that a fair assessment? Or have I overlooked something from the quarter?

David O'Reilly, CEO

Alex, I think that was well said. We increased our guidance in our MPC segment to a record number for the company, despite this higher interest rate environment. Our current run rate NOI is the highest in the history of the company. And as you know, over the past several years, we've sold our hotels, we've sold our non-core retail, we sold self-storage. We chipped away at that NOI, and despite selling assets that were non-core, our core office, retail, and multifamily have demonstrated great resilience in a more challenging market due to the desirability of our communities, delivering incredible results in our operating asset portfolio. And then we had a modest price reduction that we talked about last quarter in Hawaii, and it was exactly what was needed because we sold out both Ko'ula and A'ali'i at better numbers than we had anticipated even last quarter. And the momentum continues there with presales at Kalae continuing to go higher every month. So I think your comments are spot on, that every piston in this company is firing as the best it ever has, with the exception of the Seaport, which has faced some unfortunate headwinds, some of which are beyond our control and mother nature being the biggest culprit in the month of September.

Alexander Goldfarb, Analyst

Okay. And then the next question, David, is until Seaport Entertainment spins off, is there other noise that we will see in the quarterly results? Or is all of that sort of taken care of in this quarter?

David O'Reilly, CEO

I think if your question is asking about kind of the one-time items or a recurrence of the type of announcements like we saw this quarter with the impairment, I don't anticipate any. I'll never say never because things change overnight, and pretty dramatically in some instances. But we don't see any kind of one-timers or major items out there that we would want to highlight or guide to today.

Alexander Goldfarb, Analyst

Okay. And then is there an update that you can provide on Nevada? I don't know if there's anything on the ballot for election today or if there's anything legislatures contemplating with regards to the studio tax credits, but maybe an update there?

David O'Reilly, CEO

Yes. We're continuing to advance the ball down the field. And the team here in Summerlin, we're taking our earnings call today from the Summerlin office, has done an incredible job partnering with the governor, with the Senate, with the assembly, and helping to craft the bill that we think will meet the needs of all the folks involved, including our local residents and all the residents of Southern Nevada who want to see a stronger, more diversified economy and the influence of diversification factor with the film studio business. We're still continuing to work closely with Sony, but we don't have a date yet for a special session on legislature where we would try to get this bill brought. Positive momentum, but no clear definite date on when we can get going.

Alexander Goldfarb, Analyst

Okay. Just one final question: home sales are certainly strong, and land sales are too. Regarding the homebuilders and the sales to new residents, are these sales being driven by builder incentives that assist buyers in dealing with the current interest rate situation, or are buyers simply accepting the 7% plus mortgages and making purchases? I want to understand how much of the home sales are supported by builder incentives compared to the natural demand overcoming the interest rate challenges.

David O'Reilly, CEO

The answer to that, Alex, is yes, because we're seeing all of the above. In Summerlin here, where we have mostly national homebuilders, many of which have their own mortgage companies, we've seen them lean in with short-term and even long-term rate buy-downs, typically around 100, 150 basis points. In Bridgeland, where we've had incredible home sales, we're dealing with large regional private builders, most of which don't have their own mortgage company, and have only in limited instances provided incentives with rate buy-downs. So I think we've seen both. All buyers come to the table with different needs. Some are short-term rates that buy down, somewhat long term, some don't want any. And I think the homebuilders are being thoughtful and creative how they address the needs of individual buyers and driving home sales. And the results of the public homebuilders have been nothing short of exceptional. We've seen quarter after quarter and in some instances, 8 to 10 quarters in a row, with margins over 25%. And I think that means that there's still leverage in the hands of the homebuilder, not the homebuyer because the limited supply of resale inventory is pushing everyone into new construction.

Peter Abramowitz, Analyst

Just wondering if you could talk about the two new projects you broke ground on in the operating assets segment this quarter. I guess, what made them particularly attractive, looking at the returns relative to your cost of capital? And I guess, how does that stack up in terms of the opportunity set that's out there today for development?

David O'Reilly, CEO

Yes, Peter, Jay and I have discussed the individual projects with Whole Foods and Riva Row. I'll summarize it quickly to avoid redundancy. We've always built Whole Foods in our communities because we believe they serve as catalysts for transforming the landscape. As Jay mentioned, we have a large-scale master plan in Downtown Summerlin, with a significant number of multifamily assets in our pipeline. Having a Whole Foods can drive higher rents and accelerate that development pipeline. At Riva Row in the Woodlands, we aim to set a new standard for luxury multifamily living, which we believe will be noteworthy not just in the Woodlands, but throughout Houston. We have been conservative in our financial assessments of that asset, which we expect will positively influence its surrounding land and community along the waterway, ultimately benefiting our company's value creation in the long term. However, as Jay pointed out last quarter, it is currently more challenging to achieve yields on new development projects. Therefore, you can expect us to take a targeted approach in selecting the best assets that offer exceptional returns or enhance the area around them, improving the quality of living, boosting home sales, increasing rents, and fostering a better sense of community. Rising inflation, higher interest rates, and uncertain exit valuations due to the current lack of transactions are significant challenges. We'll continue to pursue this targeted approach, especially in Hawaii, where we are not experiencing the same impact, allowing us to maintain strong margins and attractive risk-adjusted returns.

Peter Abramowitz, Analyst

Got it. And then one more. Could you just talk about what the underwritten loan-to-value was, particularly on those office loan extensions you executed in October?

David O'Reilly, CEO

I'm hesitating, Peter, because I don't know what value is right now for office assets, even well-leased, cash-flowing office assets. Those extensions came with modest pay-downs from their whole levels. I think the LTVs are very conservative where they are. I would venture 50 or sub-50, but it all depends on where you think the right office cap rate is. What you think office values are in this world, where there hasn't been a lot of transactional volume that would demonstrate what a well-leased cash-flowing office asset in the Woodlands would be worth.

John Kim, Analyst

A couple of questions on the spin-off. Just bigger picture, what is the relationship going to be post-spin between Howard Hughes and Seaport Entertainment? Will you have an ownership stake in the new entity? Will there be any management rights? And also on the balance sheet, it looks like there's just $150 million of debt at 250 Water Street. I was wondering how much leverage will be on each entity, post-spin?

David O'Reilly, CEO

All great questions, John. So the relationship between Seaport Entertainment and Howard Hughes will be very similar to the relationship that Howard Hughes had when it was spun out from GGP, in that we won't have an ongoing ownership stake in Seaport Entertainment. The shareholders of HHH today would expect to receive ownership in both HHH and Seaport Entertainment, post-spin. We won't have direct ownership. I think that we will contemplate and discuss with Anton and the management team there having some transition services agreements in place as he builds his back office and support, whether it's IT, HR, risk management, accounting, etc. And we're happy to provide those external services until he's able to build the team and stand it up on its own. Again, that will be a decision for Anton and the team to make over time. But from our perspective, we're happy to be supportive in making sure they're successful as they're spun out into their own public company. Your second question was about leverage at each company. And I'm going to go back to the comments I made earlier with Tony that we're still working through a lot of the consent process, approval, and structuring that would determine ultimately whether 250 Water is in Seaport Entertainment, and whether the stadium, the Las Vegas Ballpark stadium here in Nevada is in the spin. If those are in, the leverage associated with them would travel with them, assuming we're able to achieve those lender consents. But again, we don't have any details to share at this time or any certainty around that. Once we do, we will absolutely make sure all our investors know so that you can follow the leverage stats of both companies, pre and post-spin.

John Kim, Analyst

I appreciate the moving parts. And I know that the goal is to ultimately just simplify the story for Howard Hughes. But will this spinoff be accretive to earnings year one?

David O'Reilly, CEO

I have never focused on driving next quarter's earnings. Our priority has always been on creating long-term value for our shareholders and increasing our net asset value over time. This decision isn’t just about squeezing out a small amount of funds from operations. In fact, I am not even aware of what our funds from operations were this quarter because I don’t believe it impacts value. This strategy will help us focus our company and allow us to invest our recurring free cash flow from these land sales back into the communities, improving them and making them better places to live, work, play, learn, and explore. Anton and his team will have a significant opportunity with Seaport Entertainment to enhance that asset as it evolves from a traditional real estate model with tenants and leases to a dynamic operation involving concert venues, restaurants, food halls, and various activations. By seizing this opportunity, which we believe has great potential across the country, they can unlock significant value at many real estate assets through operational and entertainment expertise, providing them with a substantial growth trajectory.

John Kim, Analyst

Okay. On the EBT guidance and MPC, which you increased pretty significantly, that implies a very strong fourth quarter. And I was wondering if you could provide any color on the breakout between Summerlin, Bridgeland, any potential commercial land sales, and how many sales are under LOI already?

David O'Reilly, CEO

I would say that sitting here in November, we have pretty good visibility into the last seven weeks of the year in terms of what we have under LOI, what we have under contract, that's just subject to typical closing conditions. I think the mix, as you'll see in the fourth quarter, will be largely in line with the third quarter in terms of Summerlin, Bridgeland, etc. And look, some of the unknowns out there are what's the builder price participation, right? And we had another incredible quarter this year of builder price participation that in an 8% mortgage rate environment, you don't expect folks to be paying premiums on homes above where we had sold the land, but it continues to happen, it continues to materialize. So those happy surprises, if you will, are tough to model and tough to know because you never know what those exact home sales will be until they close. We don't expect any material commercial sales in the fourth quarter.

John Kim, Analyst

Okay. And the last question for me is about the Chevron sale at Bridgeland. It's a strong company that will help promote development. It seems they received attractive pricing for their commercial land acquisition. Was that pricing discounted because they are essentially the anchor of the commercial area, or does it reflect current land prices?

David O'Reilly, CEO

Look, I would tell you that the first purchase that they made, the initial 77 acres, I think it was very full value, a very fair value. And honestly, I think that we charge more for the land than any other site that they were looking at in Houston. The second sale that had occurred this quarter of the 13 acres, that is land that they wanted to control for privacy reasons. It's land that's restricted to green space. So in light of that, I think it's a fair price.

Anthony Paolone, Analyst

I just had one, just if you could remind me. On the Woodlands Towers, and then in Ward Village retail, for those two, both have pretty high leased rates, but there's still this big gap between sort of the in-place and the expected stabilized NOI. Can you remind me, like for those two, what needs to happen to kind of get there?

David O'Reilly, CEO

Yes, absolutely. Great question, Tony. The Woodlands Towers is pretty simple. We just have to burn off free rent and build-out tenant space and get cash coming in the door. So I think we have a pretty short runway on time before we close the gap between the in-place NOI and stabilized NOI. It's really just the burn-off of abatements and timing of recently signed leases. Ward Village is a longer story because as you know, with each tower that we develop, we're knocking down older retail, taking away NOI, spending 2.5 years to build the tower that has new retail on the ground floor and then leasing that square footage up at a much higher rate, driving NOI higher. So it's one step back, two steps forward. To get to that stabilized NOI, it's going to take, again, the next four to five years as we build out the remainder of Ward Village, knocking down one block and building a block in its place at a much higher NOI yield.

Alexander Goldfarb, Analyst

David, given the success of Ward Village, at what point do you start the discussions with the local municipalities about further development phases beyond what you currently have entitled?

David O'Reilly, CEO

I would love to answer it thoughtfully, honestly, and accurately without giving away too much on this call. Look, we have five or six years of runway ahead of us with the entitlements that we have. We think we have the opportunity to unlock some value and land west of Ward that we won't have touched when we've used our entitlement, and some other blocks in between buildings where there's opportunities such as Ward Entertainment Center. It's too early to comment on that. We have a long road ahead of us in terms of being able to unlock value there. And I don't want to distract too much from the clear value creation we have in front of us in the next short term, with focus on what could be in years six through twelve. Just want to thank everyone again for joining us. It was, in our view, nothing short of a spectacular quarter across our core business segments. We look forward to speaking with you at the upcoming conferences and our next earnings call. And if there are any questions in between, by all means, please feel free to reach out. Thank you again.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.